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COVID-19 impacts on commodities to vary, analyst says

Corn is the most negative of all grain commodities.

The coronavirus now has at least 788,522 infections worldwide (up 63,577 today), 37,878 died (+3,837), and at least 166,768 recovered (+14,454).  

For a few days now, we have seen a slowing in growth of the virus, with the typical increase of 2x over every two or three days in Western countries slowing considerably – a very positive sign.  However, there is some difficulty in determining whether or not the slowing is just because overwhelmed officials are just not able to count those cases that are not  ill – especially the non-symptomatic patients. 

China today reported that 1,541 asymptomatic carriers were previously unreported as being infected, but of course that is just active carriers now as many more were likely untested earlier. It previously did not report them, either, so the 80,000+ number is certainly much higher than that (the 3,000 dead is, of course, accurate) which means the 3%+ death rate is certainly high. But how high is still not known. Certainly, the same inaccurate information is coming out of Italy as they are currently reporting a nearly 11% death rate from the virus (Spain and France are 7% to 8%). All of these are high because actual infections of asymptomatic people are not counted in most cases.  In the NBA basketball league where all players were tested, about 75% of infected people (players are mostly ages 20 to 35) were asymptomatic.  

USDA Acreage

Tuesday, we got the March acreage intentions report, usually one of the biggest USDA reports of the year. In it, corn acreage was 2.7 million acres larger than expected at 97 million, with 209 million bushels smaller stocks than expected. The report was bearish corn, then, but it was bullish soybeans as 1.2 million smaller acres than expected are to be planted at 83.5 million acres.  Wheat was also bullish at 200,000 less acres than expected (44.7 mln) and 25 mb smaller stocks than expected.  

Yet, the acreage report likely will get barely a mention in ag sectors (and none in the general press) as it has very little importance right now with such a dramatic change in the U.S. economy currently taking place. About 25% of the U.S. GDP is virtually shut down as we try to prevent infections of COVID-19. How long that will remain will determine whether we have a depression the next few years in the U.S., or just a recession. 

If 25% of the U.S. economy is shut down for one year or more, it will be a depression similar to the extent of the Great Depression of the 1930s and ’40s. If it is only for six months, that is a 12.5% GDP drop that will be only the second worst of U.S. history. If only three months, then a 4% GDP decline is a bad recession. China (which as a communist country was able to use draconian measures to stop the virus) is recovering in about 3 months from the initial infection in late December; that might be the best-case scenario for the U.S. So, this is still the most important story for the U.S. economy.  

Impacts on commodities will vary: corn is used about one-third for energy via ethanol - meaning corn has lost probably one-third of its demand right now, as people can’t travel/drive much (leading to the lowest energy prices in 18 years). So, corn is the most negative of all grain commodities. 

Wheat, durum, rice, and dry beans might be the most bullish - as groceries can’t keep any of these items on the shelf right now and demand is skyrocketing. 

Potatoes are an interesting product – fresh potatoes are flying off the shelves and there likely is not enough product as consumers are isolated at home. 

Restaurants (including McDonald’s), however, are not buying french fries so Russet Burbank potato demand is dropping – leading to cuts in volume in contracts offered to Russet growers. Ag products restaurants buy – not homebound consumers – will suffer while products consumed at home will prosper. But again, for how long? Will this social distancing last three months like in China? Six months?  One year or more? That is the million dollar question.   

Transportation is also a major issue, so importing countries are buying rapidly to stock supplies (Russia, Ukraine, and others might curtail exports as well). Essentially, many countries are accelerating imports to protect from prolonged delays in shipments due to the virus, so shipping lanes are being impacted. The most basic of food needs remain eggs, milk, potatoes, bread, pasta, and beans of all kinds. Regardless of the epidemic situation, food products are at a premium to supply internationally as they are the most basic necessity of all.  

The Defense Production Act has received some discussion as the government invoked it two weeks ago, whereby they can compel companies to produce products in need (as determined by the government). Trump has been reluctant to use it, but finally did against General Motors to force it to make ventilators when GM stalled the negotiations. Essentially, this gives the government huge powers to control companies – exactly what Germany had in WWII as well. This can become a dangerous precedent because it gives government extreme power – dangerous in the wrong hands. 

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Ray can be reached at raygrabanski@progressiveag.com.  

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Ray is President of Progressive Ag Marketing, Inc., a top Ranked marketing firm in the country.  

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